Dumping Of Steel INTRODUCTION Foreign steel producers plague the U.S. steel industry with unfair competitive practices. This practice is referred to as dumping. Dumping of foreign steel has been a problem throughout the history of the U.S. steel industry.
In the 1990s dumping has become more of a problem, due to the breakdown of the Russian economy and its transition from Capitalism to a free-market economy. According to Microsoft Encarta 98 (1998), Free-Market Economy, is an economic system in which individuals, rather than government, make the majority of decisions regarding economic activities and transactions. In addition, the Asian financial crisis has led to another round of dumping into the U.S. markets by many Asian countries. The effects of dumping have a positive as well as a negative impact on the health of the overall U.S.
economy. On the positive side, steel-using industries enjoy lower prices for steel used in the manufacture of their products. Turning to the negative side, the U.S. steel industry has suffered tremendously through layoffs and a collapse of a number of steel makers. Should the U.S. Government provide protection against dumping? The debate on protectionism has gone on for years.
Protection of one industry by the U.S. Government has come at the cost of another including the U.S. consumer. BREIF HISTORY OF THE STEEL INDUSTRY The steel industry grew out of the need for stronger and more easily produced metals. During the last half of the 19th century, many technological advances in steelmaking played an important role in creating modern economies. These economies depended on the steel industry to supply rails, autos, girders, bridges, and many other steel products.
Iron making can be traced as far back as 3,500 b.c. in Armenia. The Bessemer process, created independently by Henry Bessemer in England and William Kelly in the United States during the 1850s, allowed the mass production of low-cost steel; the open hearth process, first introduced in the United States in 1888, made it easier to use domestic iron ores. By the 1880s, the growing demand for steel rails made the United States the world’s largest producer. The open-hearth process dominated the steel industry between 1910 and 1960, when it converted to the oxygen process, which produces steel faster, and the electric furnace process, which makes it easier to produce alloys such as stainless steel.
After World War II, the U.S. steel industry faced increased competition from Japanese and European producers, who rebuilt and modernized their industries. Later, many Third World countries such as Brazil built their own steel industries and large U.S. steelmakers faced increased competition from smaller, nonunion mills. The U.S. produced about half of the world’s steel in 1945; by 1991 it was the third largest producer, with only 11% of the world market, behind the former Soviet Union and Japan. Since the 1970s, growing competition and the increasing availability of alternative materials, such as plastic, slowed steel industry growth; employment in the United States steel industry dropped from 2.5 million in 1974 to 1.6 million in 1991.
Global production stood at 736 million tons in1991, down from 786million tons in 1988 (The Columbia Encyclopedia, 1993). DUMPING Columbia Encyclopedia, (1993) defined dumping as the selling of goods at less than normal price, usually as exports in international trade. It may be done by a producer, a group of producers, or a nation. However, dumping is usually done to drive competitors off the market and secure a monopoly, and/or to hinder foreign competition. Nations, in an effort to counterbalance international dumping, often resorted to flexible tariffs.
International trade through acute competition from foreign producers often leads to dumping infractions of law. A policy regarding dumping, depends on its effectiveness in maintaining separate domestic and foreign markets, the monopolistic mechanism that influences the stability of high prices in the home market, on export bounties, or on low import duties in the foreign market help maintain economic balance. Dumping disturbs those markets that receive dumped goods and it may drive local producers out of business. Governments may condone, even sponsor, dumping in other markets for political reasons and/or to achieve more favorable balance of payments. In the late 19th century, dumping became part of the trade policy of great European cartels, especially German cartels.
Britain, France, Japan, and the United States have also practiced dumping. Canada first passed antidumping legislation in 1904. The United States in an effort to discourage dumping, imposed various tariff acts that dealt with different types of dumping; in particular the Emergency Tariff Act of 1921, imposed special duties on goods imported for sale at less than their fair value or cost of production. It was amended by the Customs Simplification Act of 1954. The General Agreement on Tariffs and Trade (GATT) prohibits dumping and provides for increased import duties to combat the practice (Columbia Encyclopedia, 1993).
DUMPING IN THE 1990s The dumping of steel products into the U.S. market has been going on throughout history. Nevertheless, it has become more prevalent during the 1990s. According To Robert J.Grow (1998), the first major shock of the 1990s came from the near total collapse of steel plate demand in the former Soviet Union and a concomitant surge in exports to the U.S. Fortunately, U.S. producers successfully challenged the dumping of plate into the U.S. market with trade cases filed in Nov.
1996. After findings of massive dumping margins and affirmative determinations of injury, the governments of Russia, Ukraine, and China reached suspension agreements that will reduce imports from these countries by 70 percent from 1996 levels of over 1 million tons. These countries essentially had not shipped to the U.S. market before 1993. The entire U.S.
steel industry is attempting to overcome the second major shock of the 1990s the Asian financial crisis. The Asian financial crisis has meant collapsing currencies for many Asian countries, International Monetary Fund (IMF) bailouts for several of these countries, soaring domestic interest rates, bankruptcy filings, and significantly reduced home-market demand in Asian countries (Grow, 1998). This crisis has forced many Asian countries to resort to dumping steel on the U.S. market due to low demand at home. THE CAUSE For years, the Asian model involved government-directed lending within a closed financial system to favored companies and industries in export-targeted sectors like steel despite the creditworthiness of the enterprises receiving the financing.
Long-term capital expenditures were financed with short-term debt, and increased capacity was used to fuel higher exports and increases in the standards of living for workers. Workers in Korea were granted lifetime employment. Profits or the lack thereof, was not important; instead, market share and increased exports were emphasized. When the poster child of these Asian financial abuses, Hanbo Steel, filed for bankruptcy in Jan. 1997, the dominoes began to fall.
Incredibly, at the time of the bankruptcy, Hanbo had received $5.8 billion in loans, led by the Korean-government-owned Korea Development Bank. Since the bankruptcy, Hanbo has been managed by Pohang Iron and Steel, now the world’s largest steel producer and still 36-percent-owned and controlled by the Korean government (Grow, 1998). Because of the lack of demand for steel products in many Asian countries coupled with subsidized over capacity the U.S. has witnessed an inflow of steel products into the country. Korea has exported record numbers of steel pipe to the U.S.
Also, increased exports of plate from Korea and Indonesia, and increased imports of hot-rolled sheet from Japan, among other countries in the region. According to American Metal Market (1999), By June of 1999, the list of countries allegedly dumping steel has grown to include Argentina (28 percent), Brazil (32 percent to 63 percent), China (27 percent), Japan (49 percent to 53 …